Notary Lending Networks in Northern Italy in the Eighteenth and Nineteenth Centuries

Large, bustling private capital networks centered on notaries emerged during the second half of the eighteenth century in northern Italy, from Lombardy to Veneto and from Liguria to Trentino. Incomes, annuities, savings, cash flows, and civilian or monastic dowries began to fuel a complex, well developed network of money exchange centering around notaries. Notaries were crucial actors within this market as they acted ‘informally’ as financial intermediaries, matching those seeking capital with those looking for investments. The great store of information they collected and consulted during their regular activities reduced transaction costs, such as adverse selection, preventing the market from failing and helping to expand it. The networks penetrated like fine capillaries through society. The thousands of large and mid-sized transactions made this market the ‘dark matter’ of financial systems, i.e., the bulk of capital markets. In northern Italian regions, both in towns and metropolises, the sums mobilized in these informal credit networks reached significant amounts. In Rovereto, for instance, during the economic boom of the eighteenth century, the private capital market amounted to four times the revenues from tolls. In 1840 Milan, it was over 17% of total State revenues (10,648,000 Milanese lire). Here, almost one fifth of the fami-lies had turned to the credit services offered by notaries, who relied on consolidated information rather than generic mortgage guarantees. Thanks to a massive scrutiny and a longitudinal information set about their clients, notaries were able to sustain a market in which a separating equilibrium could be achieved. High-risk agents could find creditors willing to lend them capital, charging a higher interest rate, and low-risk debtors could find less costly options leveraging their reliability as debtors. The capital market thus prevented the exclusion of operators who could not offer real estate in guarantee but staked the success of their more innovative ventures on their motivation, entrepreneurial spirit, and busi-ness acumen. Medium-and long-term capital was mobilized to finance the more modern entrepreneurial initiatives that were animating the local economic environment and that could not find support from the casse di risparmio (savings banks). These institutions, which did not have the same extensive social knowledge network, relied on the scrupulous assess-ment of the value of mortgaged assets and thus ended up granting loans only to aristocratic families or municipalities. The relationship between banks and notaries’ credit activity was not one of exclusion, but rather of coexistence, complementarity, and later hybridization. The effectiveness of the credit system rested on a thick and articu-lated credit network, which was elastic and, thanks to the decisive role of notaries, offered increasing returns on the accumulation and distri-bution of information, establishing a process of path-dependence that highly influenced the formation of Italy’s post-unification ‘financial iden-tity’. In the middle of the nineteenth century, when Vienna asked for a voluntary loan from the ecclesiastical bodies of Lombardy-Venetia (after realizing that religious bodies and other similar institutions were endowed with ‘the most conspicuous capital’) it turned out that in Brescia the sum invested by these institutions in mortgage loans was over 9 million Austrian lire, complemented by over 23 million from private individuals. The competition within this effervescent mortgage business—centered on notarial credit networks, which put the forced savings of convent dowries or charitable endowments back into circulation—hindered formal lending institutions, like modern banks, from gaining a favorable position in the private lending market.